Calculate Your Own Car Lease Payment

Spot a Good Deal Before You Shop

Most car shoppers have no idea what a good lease payment is for a car they're considering. They need a benchmark to guide them through the shopping process: something to shoot for as they get lease quotes from different dealerships. You can calculate such a lease payment with the formula described later in this article. However, there are easier ways to estimate what your lease payment could be.

Another valuable resource is the Edmunds.com Lease Calculator. You will need to have some information handy to get an accurate quote, but the calculator will do the math for you. It also pulls in current purchase price information about current models and local tax rates.

Finally, you can use the Internet to simultaneously get multiple real-world lease quotes. With three to five quotes in hand, you can quickly test the market. Later, you can finalize the rest of the deal with a phone call or e-mail.

If, after you exhaust these resources, you are still determined to calculate your own car lease payment, read on.

Lease Payment Estimating
Calculating a lease payment to the penny is unrealistic: Local taxes vary widely and the dealer may charge additional fees. But you can arrive at a ballpark figure by using the following formula. As an example we will use a $23,000 car and a three-year lease. That's a term Edmunds.com highly recommends because, for one thing, you will always be under the manufacturer's bumper-to-bumper warranty.

You can calculate a "bottom-line lease" that represents the very best deal you can expect to get. Such a lease is based on the car's invoice price. When you shop and get quotes from dealers, if you get payments close to this (in a 36-month lease), you will have done well. As you're working on estimating your payment, please reach out to the Edmunds.com Live Help team for free assistance any time you need it. They'll be happy to help.

To calculate a bottom-line lease payment, you will need to gather several figures:

1. MSRP of the vehicle. Also called the sticker price. You can find the MSRP price for each car shown on Edmunds.com.

2. The money factor. This is the interest rate on which the lease is based. It's sometimes called a lease factor or even a lease fee. To get the money factor, call the dealer or get the information from your credit union. A common interest rate is 3 percent and as a money factor, this would be 0.00125. (Here's a handy tip: To convert interest rates to money factors, divide the interest rate by 2,400. To convert money factors to interest rates, multiply by 2,400.)

3. Lease term. We recommend leasing for 36 months or less.

4. Residual value of the car. Look up your car's residual value. Or call the bank or dealer and ask for the vehicle's residual value. As a rough guide, most cars have a residual value of between 45 and 60 percent for a 36-month lease.

Calculating a Sample Car Lease Payment
In the following example, let's assume you negotiated the car's sticker price of $23,000 down to $20,000. We'll also assume that the interest rate is 3 percent and the residual value is 57 percent. So what would the monthly payments be on a three-year lease?

The first step is to find out what the car will be worth three years from now. In other words, how much of the car's value are you going to use during the lease term? In this example, multiply the sticker price of $23,000 by the residual value of 57 percent.

$23,000 X 0.57 = $13,110

The car will be worth $13,110 at the end of the 36-month lease. Since the car was worth $20,000 (after you negotiated it down from a sticker price of $23,000) and it will be worth $13,110, you will be using $6,890 of the car's value.

$20,000-$13,110 = $6,890

Then, divide $6,890 by 36 (the number of months in the lease). That yields a base monthly payment of $191.39. But, before you get excited about how low this payment is, remember that this figure doesn't include interest or tax. Finding how much interest you'll be charged is the second half of the calculation.

Add the negotiated price of the car to the residual value and multiply this by the money factor.

($20,000 + $13,110) X 0.00125 = $41.38

Finally, these two figures are added together to give you the approximate bottom-line monthly lease payment.

$191.39 + $41.38 = $232.77

Remember, this figure still does not include taxes or fees. It also doesn't take into consideration any down payment, trade-in credit or upfront money such as rebates or incentives. The entire formula looks like this:

1. Sticker Price of the car + options

$23,000

2. Times the residual value percentage

X 0.57%

3. Equals the residual value

= $13,110

4. Invoice price of car minus incentives (net capitalized cost)

$20,000

5. Minus the residual (from line 3)

- $13,110

6. Equals the depreciation over 36 months

= $6,890

7. Depreciation (line 6) divided by term in months

÷ 36

8. Equals the monthly depreciation payment

= $191

9. Net capitalized cost (From line 4)

$20,000

10. Plus the residual (From line 3)

+ $13,110

11. Equals

= $33,110

12. Times the money factor

X 0.00125 (3 percent)

13. Equals money factor (interest) payment portion

= $41

14. Monthly depreciation payment (from line 8)

$191

15. Plus money factor payment portion (from line 12)

+ $41

16. Equals bottom-line monthly lease payment

= $232

Don't forget that you haven't paid sales tax yet. To account for tax, multiply the monthly lease payment by the state sales tax. For this example, in California the sales tax is approximately 9.25 percent. (For a more precise preview of your payments, you can also factor in any local sales taxes at this stage.)

In the above example, you could reduce your monthly payment with a bigger down payment or by trading in your old car. Most advertised lease payments assume at least $1,000 in "drive-off fees." However, you decide on the amount you want to pay for drive-off fees yourself. The more money you put into drive-off fees, the lower the monthly payment. Subtract any money you put down from line 4, which is the invoice price of the car.

While this calculation looks a bit complicated, it is easy to set up a spreadsheet to do the calculation for you. Then, all you need to do is plug in the new figures for each car you are considering and your spreadsheet will generate an estimated lease payment. It's time well spent, since this will guide you through the process and help you get a good deal on a leased car.

Gentlemen/Ladies -- Why, in lines 9 - 11 of the calculation, are the net capitalized cost (20,000) and the residual (13,110) added to produce 33,110? What is the concept of applying the money factor to that large number? Can you explain a bit further, please?
Expressed another way, if a simple amortization calculation is made (on an HP 12C calculator) using 36 months, 3% interest and a monthly payment of $232.77 (i.e. the 191.39 for the depreciation + the 41.38 for the interest), the present value being financed is $8,004, which is not the same as the $6,890 depreciation in your line 6. Why is there that difference? Apparently the financing is based on more than just the depreciation?
So where am I going wrong? What am I missing in the explanation?
Maybe this is "just the way they do it" but it would help to understand the concept/rationale better.
Thanks very much.
Baylis

Hi Philip. Thank you for the article. I have a question, that I hope you can answer. If one was to pay the lease payments upfront ($6890), would that reduce the amount that was subject to interest payments by $6890?
So, in the case above, the amount multiplied by the money factor would be $26,220. Does this work?

I'm looking at a Jett Sportwagen TDI. The dealer gave me a residual value of 70% (seems pretty high by consensus). Using this formula with their money factor of 0.00049, I came to a monthly payment, tax included, of just under $250.00/mo for 36 months. Earlier in negotiations he quoted me $338/mo. Is he trying to pull a fast one on me?

Several friends are leasing some for the 3rd time. Here's what they're getting. No money down, payments $250-325 a month for 36 months. Quick calculation is the payments equal to Half the price of the purchase price. I realize there are many variables but I believe it's a good rule of thumb.

@baylis: I was thinking the same thing. If the residual value were, say, 90% of the MSRP, then lines 11, 12, and 13 would be higher and produce a larger monthly lease payment. (Line #8 would be smaller, of course -- much smaller -- but you get the point.)
"Gentlemen/Ladies -- Why, in lines 9 - 11 of the calculation, are the net capitalized cost (20,000) and the residual (13,110) added to produce 33,110? What is the concept of applying the money factor to that large number?"

@baylis: I was thinking the same thing. If the residual value were, say, 90% of the MSRP, then lines 11, 12, and 13 would be higher and produce a larger monthly lease payment. (Line #8 would be smaller, of course -- much smaller -- but you get the point.)
"Gentlemen/Ladies -- Why, in lines 9 - 11 of the calculation, are the net capitalized cost (20,000) and the residual (13,110) added to produce 33,110? What is the concept of applying the money factor to that large number?"

The two numbers are added, because the amount subject to finance charges is an average of those two numbers...
You don't have to divide by 2 to get the averages, because that part of the calculation is accounted for in the money factor.

@baylis: I was thinking the same thing. If the residual value were, say, 90% of the MSRP, then lines 11, 12, and 13 would be higher and produce a larger monthly lease payment. (Line #8 would be smaller, of course -- much smaller -- but you get the point.)
"Gentlemen/Ladies -- Why, in lines 9 - 11 of the calculation, are the net capitalized cost (20,000) and the residual (13,110) added to produce 33,110? What is the concept of applying the money factor to that large number?"

The two numbers are added, because the amount subject to finance charges is an average of those two numbers...
You don't have to divide by 2 to get the averages, because that part of the calculation is accounted for in the money factor.

But how are you paying interest on an amount that is greater than what you are borrowing, if the true borrowed amount is basically the sales price of the car. I always thought the true "in the math mechanics" were something like an interest only loan for the residual and a normal amortizing loan for the depreciation?

@baylis: I was thinking the same thing. If the residual value were, say, 90% of the MSRP, then lines 11, 12, and 13 would be higher and produce a larger monthly lease payment. (Line #8 would be smaller, of course -- much smaller -- but you get the point.)
"Gentlemen/Ladies -- Why, in lines 9 - 11 of the calculation, are the net capitalized cost (20,000) and the residual (13,110) added to produce 33,110? What is the concept of applying the money factor to that large number?"

The two numbers are added, because the amount subject to finance charges is an average of those two numbers...
You don't have to divide by 2 to get the averages, because that part of the calculation is accounted for in the money factor.

But how are you paying interest on an amount that is greater than what you are borrowing, if the true borrowed amount is basically the sales price of the car. I always thought the true "in the math mechanics" were something like an interest only loan for the residual and a normal amortizing loan for the depreciation?

You pay finance charges on an average of the net cap and the residual. To get an average, you add the two numbers together, then divide by 2. The division by 2 is accounted for already within the money factor.

@baylis: I was thinking the same thing. If the residual value were, say, 90% of the MSRP, then lines 11, 12, and 13 would be higher and produce a larger monthly lease payment. (Line #8 would be smaller, of course -- much smaller -- but you get the point.)
"Gentlemen/Ladies -- Why, in lines 9 - 11 of the calculation, are the net capitalized cost (20,000) and the residual (13,110) added to produce 33,110? What is the concept of applying the money factor to that large number?"

The two numbers are added, because the amount subject to finance charges is an average of those two numbers...
You don't have to divide by 2 to get the averages, because that part of the calculation is accounted for in the money factor.

But how are you paying interest on an amount that is greater than what you are borrowing, if the true borrowed amount is basically the sales price of the car. I always thought the true "in the math mechanics" were something like an interest only loan for the residual and a normal amortizing loan for the depreciation?

You pay finance charges on an average of the net cap and the residual. To get an average, you add the two numbers together, then divide by 2. The division by 2 is accounted for already within the money factor.

Ahhh. It's amazing the clever shortcuts we had to come up with before everyone had smartphones, the internet, or even excel.

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